MIAA v.

CA 2006 July 20 prohibition and injunction General rule: When local governments invoke the power to tax on national government instrumentalities, such power is construed strictly against local governments Exception: However, when Congress grants an exemption to a national government instrumentality from local taxation, such exemption is construed liberally in favor of the national government instrumentality Exception to the exception: The only exception is when the legislature clearly intended to tax government instrumentalities for the delivery of essential public services for sound and compelling policy considerations. Petitioner: MIAA operator of NAIA

Respondent: Paranaque City and its Mayor, City Council, Assessor and Treasurer assessed real estate taxes of MIAA Facts: 1. MIAA received Final Notices of Real Estate Tax Delinquency from the City of Paraaque for the taxable years 1992 to 2001 totalling P624 million. 2. The City of Paraaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport Lands and Buildings. 3. The Mayor of the City of Paraaque threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency. 4. MIAA filed with the Court of Appeals an original petition for, with prayer for preliminary injunction or temporary restraining order, seeking to restrain the City of Paraaque from imposing real estate tax on, levying against, and auctioning for public sale the Airport Lands and Buildings. 5. Paranaque made publication of the public auction to be held on 7 February 2003, 10am at the Session Hall: a. posted notices of auction sale in three of its barangays Vitalez, Sto. Nino and Tambo b. published notices in the Inquirer on 3 and 10 January 2003 6. On the day before the auction, MIAA filed an urgent motion for TRO; the same was granted on the day of the auction but was received by respondents 3 hours after the auction. MIAA: 1. Existing laws exempt MIAA from payment of such taxes. a. Section 21 of MIAA Charter specifically exempts MIAA from the payment of real estate tax b. Section 234 of the Local Government Code exempts such payment of tax since the lands and buildings are owned by the Republic. i. The government cannot tax itself.

ii. The reason for tax exemption of public property is that its taxation would not inure to any public advantage, since in such a case the tax debtor is also the tax creditor. Paranaque: 1. Section 234(e) of the Local Government Code expressly withdrew the tax exemption privileges of government-owned and-controlled corporations upon the effectivity of the Local Government Code. a. Such phrase was found previously in Section 40(a) of the 1974 Real Property Tax Code enumerating the entities exempt from real estate tax. i. An international airport is not among the exceptions mentioned ii. Basic rule of statutory construction is that the express mention of one person, thing, or act excludes all others. Issue: WON Airport Lands and Buildings of MIAA are exempt from real estate tax by law. Held: Yes. SC: 1. Although GOCCs are not exempt from tax, MIAA is Not a GOCC a. MIAA is an instrumentality of the National Government, and not a GOCC, stock or non-stock corporation. i. MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government and thus exempt from local taxation. ii. MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting shares. iii. MIAA is also not a non-stock corporation because it has no members. A non-stock corporation must have members. iv. MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. 1. When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. 2. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers. 3. Section 2(10) of the Introductory Provisions of the Administrative Code defines a government "instrumentality" as any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. a. MIAA exercises the governmental powers of eminent domain, police authority and the levying of fees and charges. b. At the same time, MIAA exercises all the powers of a corporation under the Corporation Law, insofar as these

powers are not inconsistent with the provisions of this Executive Order. b. Some maxims to remember for taxation by LGU: i. When local governments invoke the power to tax on national government instrumentalities, such power is construed strictly against local governments ii. A tax is never presumed and there must be clear language in the law imposing the tax iii. However, when Congress grants an exemption to a national government instrumentality from local taxation, such exemption is construed liberally in favor of the national government instrumentality 1. The only exception is when the legislature clearly intended to tax government instrumentalities for the delivery of essential public services for sound and compelling policy considerations. 2. Airport Lands and Buildings of MIAA are Owned by the Republic a. Airport Lands and Buildings are of Public Dominion i. Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the Republic of the Philippines. 1. No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like roads, canals, rivers, torrents, ports and bridges constructed by the State, are owned by the State. a. The term ports includes seaports and airports. b. The MIAA Airport Lands and Buildings constitute a port constructed by the State. c. The Airport Lands and Buildings are devoted to public use because they are used by the public for international and domestic travel and transportation. 2. That the MIAA collects terminal fees and other charges from the public does not remove the character of the Airport Lands and Buildings as properties for public use. a. The charging of fees to the public does not determine the character of the property whether it is of public dominion or not. b. Article 420 of the Civil Code defines property of public dominion as one intended for public use. c. The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of the income that maintains the operations of MIAA. 3. The collection of such fees does not change the character of MIAA as an airport for public use. a. Such fees are often termed users tax, which charges are made against those who actually use a public facility instead of taxing all the public including those who never use the particular public facility. b. Airport Lands and Buildings are Outside the Commerce of Man i. Property of public dominion, being outside the commerce of man, cannot be the subject of an auction sale.

ii. Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public or private sale. iii. Any encumbrance, levy on execution or auction sale of any property of public dominion is void for being contrary to public policy. iv. Essential public services will stop if properties of public dominion are subject to encumbrances, foreclosures and auction sale, such as in the instant case if City of Paraaque were to foreclose and compel the auction sale of the 600-hectare runway of the MIAA for non-payment of real estate tax. c. MIAA is a Mere Trustee of the Republic i. MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. ii. Section 48, Chapter 12, Book I of the Administrative Code allows instrumentalities like MIAA to hold title to real properties owned by the Republic. iii. MIAAs status as a mere trustee of the Airport Lands and Buildings is visible in the fact that even its executive head cannot sign the deed of conveyance on behalf of the Republic; only the President of the Republic may do so. d. Transfer to MIAA was Meant to Implement a Reorganization i. The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to transfer beneficial ownership of these assets from the Republic to MIAA ii. This was merely a reorganization of a division in the Bureau of Air Transportation into a separate and autonomous body. iii. The Republic remains the beneficial owner of the Airport Lands and Buildings. iv. MIAA itself is owned solely by the Republic, and no party claims any ownership rights over MIAAs assets adverse to the Republic. e. Real Property Owned by the Republic is Not Taxable i. Sec 234(a) of the LGC provides that real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person following are exempted from payment of the real property tax. ii. However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate tax. iii. The land area occupied by hangars that MIAA leases to private corporations is subject to real estate tax 3. The SC discussed the point of the minority (I think they refer to the respondents here) but that ultimately, MIAA is still not taxable. a. Minority: i. MIAA is not exempt from real estate tax because Section 193 of the Local Government Code of 1991 withdrew the tax exemption upon the effectivity of the Code, viz, [General Rule] Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical , including government-

owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions are hereby withdrawn ii. Since the Local Government Code withdrew the tax exemption of all juridical persons [MIAA being a juridical person], then MIAA is not exempt from real estate tax b. SC: i. Unless otherwise provided in this Code of Section 193 to be read together with Section 133(o), which provides: [Exception] SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxxx (o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and local government units. ii. However, the Government may be taxable on real property if it gives the beneficial use of the real property to a taxable entity under Section 234(a), LGC: [Exception to the Exception] SEC. 234. Exemptions from Real Property Tax The following are exempted from payment of the real property tax: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person. i. Note economic viability test: to prevent the creation of GOCCs that drain public coffers does not apply to MIAA, since it does not compete in the market place and performs an essentially public service.

Dispositive: Petition granted. MIAA Airport Lands and Buildings exempt from property tax. Quezon City v. ABS-CBN 2008 October 6 petition for tax refund The right to exemption from local franchise tax must be clearly established beyond reasonable doubt and cannot be made out of inference or implications. General Rule: LGUs may impose tax. Exception: Congress may limit such power of LGUs by providing exemptions through express legislation.

Petitioner:

Quezon City and its Treasurer imposed franchise tax on ABS-CBN

Respondent: ABS-CBN (position held or description of group s/he is representing) Facts: 1. Under RA 7966, ABS-CBN was granted a franchise. a. Section 8 thereof held that: i. it shall pay a 3% franchise tax and ii. the said percentage tax shall be in lieu of all taxes on this franchise or earnings thereof. 2. ABS-CBN had been paying local franchise tax to QC, but developed an opinion that it was exempted under Section 6 of RA 7966. 3. ABS-CBN paid under protest over 3 years a total of P20M in franchise tax to QC. 4. ABS-CBN filed a refund claim against QC for P14M, failing which it filed a complaint against the imposition of local franchise tax with the QC RTC for P20M. QC: 1. The "in lieu of all taxes" provision in RA 9766 cannot be held to take away constitutional mandate of self-sufficiency of LGUs through taxation of those falling under their jurisdiction. 2. LGU taxes are distinct from national government taxes, the Constitution providing that the taxes imposed by LGUs "shall accrue exclusively to the local governments. 3. Such exemption under RA 9766 [3 May 1995] withdrawn by Sec. 193 of LGC [5 January 1992]: Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or -controlled corporations, except local water districts, cooperatives duly registered under R.A. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

Respondent: 1. RA 7966, Section 8 grants the exemption from franchise tax. 2. Cited jurisprudence to show in lieu of all taxes to include taxes of LGU, i.e. Carcar Electric & Ice Plant v. Collector of Internal Revenue, Manila Railroad v. Rafferty, Philippine Railway Co. v. Collector of Internal Revenue, and Visayan Electric Co. v. David

Issue: WON the in lieu of all taxes provision in ABS-CBNs franchise exempt it from payment of the local franchise tax. Held: No. Such clause, and counsel for ABS-CBN, failed to show which specific taxes it was exempted from. Further, said clause has been rendered functus officio with the passing of the EVAT Law.

SC: 1. The right to exemption from local franchise tax must be clearly established beyond reasonable doubt and cannot be made out of inference or implications. a. Sec. 137, LGC: power of provinces [QC] to impose franchise tax i. Sec. 232, LGC: Congress may limit power of LGUs to levy ad valorem tax on real property not hereinafter specifically exempted; thus, taxing power limited by express legislation. ii. The uncertainty over whether the in lieu of all taxes provision pertains to exemption from local or national taxes, or both, should be construed against ABS-CBN who has the burden to prove that it is in fact covered by the exemption claimed. 2. Jurisprudence cited by ABS-CBN unavailing to show in lieu of all taxes includes LGU taxes a. In Manila Railroad, the charter of MRR expressly provide for such exemption, viz, Such annual payments, when promptly and fully made by the grantee, shall be in lieu of all taxes of every name and nature - municipal, provincial or central 3. The in lieu of all taxes clause in Respondents franchise has become ineffective with the abolition of the franchise tax on broadcasting companies with yearly gross receipts exceeding P10 million as they are now subject to the VAT. a. RA 7716 [EVAT Law] omitted broadcasting stations from list of entities subject to franchise tax b. Excluded entities now subject to VAT and not franchise tax c. Further, RA 8241 [amending RA 7716] gave TV companies the option to choose between 3% franchise tax or 10% VAT. d. RA 8424 confirmed that TV companies with yearly gross receipts exceeding P10 million were subject to 10% VAT [no more option]. e. RA 9337 increased the rate to 12%. Dispositive: Petition granted. Petition for ABS-CBNs tax refund dismissed.

Yamane v. BA Lepanto 2005 October 25 petition for tax refund Ambiguity as to the application of an LGU tax on an individual shall be strictly construed against the LGU. Petitioner: Makati City Treasurer Yamane assessed business tax BA Lepanto Condo Corp.

Respondent: BA Lepanto Condo Corp. corporation of association of various condo unit owners

Facts: 1. Respondent was assessed by the petitioner City Treasurer for P1,601,013.77 as payment for city business taxes, fees and charges.

2. The Notice of Assessment was silent as to the statutory basis of the business taxes assessed. 3. The respondent protested the assessment. 4. Under RA 7966, ABS-CBN was granted a franchise. a. Section 8 thereof held that: i. it shall pay a 3% franchise tax and ii. the said percentage tax shall be in lieu of all taxes on this franchise or earnings thereof. 5. ABS-CBN had been paying local franchise tax to QC, but developed an opinion that it was exempted under Section 6 of RA 7966. 6. ABS-CBN paid under protest over 3 years a total of P20M in franchise tax to QC. 7. ABS-CBN filed a refund claim against QC for P14M, failing which it filed a complaint against the imposition of local franchise tax with the QC RTC for P20M. Yamane: 1. Collection of dues effected primarily with end goal of a. getting full appreciative living values for condo owners b. to command better prices for those occupants who would sell the units in the future 2. corporation activity is a profit venture making wahahaha medyo barok si Yamane talaga 3. Articles of Incorporation specifically empowers BA Lepanto to acquire, own, hold, enjoy, lease, operate and maintain, and to convey, sell, transfer mortgage or otherwise dispose of real or personal property. BA Lepanto: 1. No statutory basis for assessment. 2. While Sec. 3A.02(m) of the Makati Revenue Code provides for the imposition of business tax on owners or operators of any business, BA Lepanto is not such an operator or owner of a business. a. LGC and Makati Code define business as trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit. b. Operations of BA Lepanto: i. not for profit ii. hold title over the common areas of the Condominium iii. manage the Condominium for the unit owners iv. hold title to the parcels of land on which the Condominium was located c. not authorized under its by-laws to enter into profit-making activities

Issue: WON BA Lepanto is liable for business tax. Held: No. Besides the failure of Yamane to show the statutory basis for such assessment, BA Lepanto does not fall within the definition of business as set forth under the LGC and the NIRC, and by its corporate purpose as provided under the Condominium Act. SC:

1. ~The Court overlooked the procedural lapse regarding appellate jurisdiction exercised by CA in the interest of justice 2. Yamane has failed to show statutory basis for assessment: a. Section 143 of LGC enumerating businesses on which LGUs may impose taxes include: i. manufacturers, wholesalers, distributors, dealers of any article of commerce of whatever nature; ii. those engaged in the export or commerce of essential commodities; iii. contractors and other independent contractors; iv. banks and financial institutions b. Section 3A.02(m) of the NIRC [catch-all phrase] also includes owners or operators of any business not specified above c. However, Yamanes notice of assessment, which stands as the first instance the taxpayer is officially made aware of the pending tax liability, failed to be sufficiently informative to apprise BA Lepanto of the legal basis of the tax. d. Requisites under Sec 195 of the LGC for the notice of assessment [although not requiring that ordinance be stated]: i. the nature of the tax, fee or charge ii. the amount of deficiency, surcharges, interests and penalties. e. However, the Court may not rule that there has been a due process violation since it was not raised by BA Lepanto. 3. BA Lepanto does not fall within the definition of business in the LGC and is thus exempt from local business taxation. a. Under the Condominium Act, a condominium corporation is precluded from engaging in corporate activities other than the holding of the common areas, the administration of the condominium project, and other acts necessary, incidental or convenient to the accomplishment of such purposes b. By-laws do not provide maintaining a livelihood or the obtaining of profit c. While Section 3A.02(f) is quite exhaustive in enumerating the class of businesses taxed under the provision, the listing, while it does not include condominiumrelated enterprises, ends with the abbreviation etc., or et cetera. i. The SC held that lack of definiteness in the use of etc cannot be held as to provide basis for imposition of tax on BA Lepanto. d. The Court rejected Yamanes argument since: i. if any profit is obtained by the sale of the units, it accrues not to the corporation but to the unit owner ii. if the unit owner does obtain profit from the sale of the corporation, the owner is already required to pay capital gains tax on the appreciated value of the condominium unit e. That the Articles of Incorporation provides for such capacity to sell, transfer, mortgage etc. any real property is limited by its stated corporate purposes limited by the Condominium Act. f. The only exception to this is when the unit owners of a condominium would band together to engage in activities for profit under the shelter of the condominium corporation. Dispositive: Petition denied. Assessment on BA Lepanto dismissed.